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Tuesday, February 27, 2024

Profit-Taking on Illumina, Inc. Options Illuminated

Today’s tickers: ILMN, USB, CCJ, BSX, VMED, SPY, GME & QSFT

ILMN – Illumina Inc. – The biotechnology firm’s shares slipped 3% today to $42.48. Profit-taking by one investor pushed the ILMN ticker symbol onto our ‘hot by options volume’ market scanner. It appears the trader originally sold 5,000 puts short at the November 35 strike for 95 cents apiece back on September 22, 2009. Today, the investor closed out the short position by buying the put options back for 25 cents each. Net profits enjoyed on the closing purchase amount to 70 cents per contract for a total of $350,000. Next, the investor reestablished a short put position by selling 5,000 puts at the November 40 strike for an average premium of 1.12 apiece. The full 1.12 premium may be fully pocketed by the trader if shares of ILMN remain higher than $40.00 through expiration.

USB – US Bancorp. – Options activity in the near-term November contract suggests at least one investor anticipates greater volatility in the price of USB shares through expiration. Shares of the financial holding company edged 1% lower this afternoon to $23.56. A long strangle play took place through the purchase of approximately 2,000 puts at the November 23 strike for an average premium of 65 cents each, and the purchase of 2,000 calls at the November 24 strike for about 73 cents apiece. The strangle cost the investor a net 1.38 per contract to implement. The transaction may prove to be profitable to the trader if shares of USB either shift above the upper breakeven point at $25.38, or if the stock moves beneath the lower breakeven price of $21.62, by expiration day. Volatility on USB rose 13% from an intraday low of 31% to a high of 35.5%.

CCJ – Cameco Corp. – The world’s second-largest producer of Uranium experienced a more than 5.5% rally in shares during the trading session to $31.31. Shares in a number of uranium companies rose after an Australian newspaper revealed BHP Billiton Ltd. declared force majeure on uranium and copper sales from its Olympic Dam mine. Force majeure is a contract provision that excuses a supplier from liability due to uncontrollable circumstances. In this case, a BHP mine in South Australia will be out of commission for at least a month due to mechanical difficulties. Investors expecting shares of CCJ to rally higher purchased near-term call options 2,500 times at the November 35 strike for an average premium of 46 cents apiece. Call-buyers may accumulate profits if shares of CCJ rise 13% from the current price to surpass the breakeven point at $36.46 by expiration next month.

BSX – Boston Scientific Company – Shares at the medical device maker slumped to a five-month low this morning despite reporting a return to profitability albeit on underwhelming revenues and predictions for more of the same. Shares fell 15.7% to $8.58 and stand 27% lower than a 52-week high made at the end of August. Option volume today of 58,000 contracts is five times the usual average and counting. However, we did note some activity that indicates investors do not feel ultra-bearish on the prospects for the company’s share price looking forward. The November 9 strike put options were the single-most trafficked contract and there appeared to be a willingness to write puts rather than buy them. Volume of 4,700 changed hands throughout the day with investors exchanging premiums of anywhere from 30 to 75 cents. At worst they see shares falling no further than $8.25 by expiration. Those options in Monday’s session were priced at just a dime. Volatility on the options did decline a little after earnings to 41%.

VMED – Virgin Media, Inc. – Shares of the telecommunications company added 2% to $14.71 today, perhaps prompting one option trader to bank gains on a previously established bullish position. It appears the investor originally purchased 11,000 calls at the January 12.5 strike for an average premium of 1.03 per contract on August 26, 2009. Today, the trader sold the calls for about 1.36 apiece. Net profits on the sale amount to approximately 33 cents for a total of $363,000. The investor also rolled the call position to a higher strike to position for further upward movement in the price of the underlying shares. The trader paid an average of 1.12 per contract to establish an 11,000-lot call position at the higher January 15 strike. Additional profits may be available to the investor if shares of VMED rally at least 10% to surpass the breakeven price of $16.12 by expiration day in January.

SPY – SPDR Trust Series – It’s that time of the year when options positions have to be adjusted once again. And it was deja-vu all over again for the world’s biggest options trade as one institutional investor once again sought to maintain a huge protective option combination into the March contract. The trade involved a total of 720,000 put options with the investor trading in a December ratio put position for a fresh bearish look at the March contract. The investor was long 120,000 December 95 puts and short 240,000 December 82 puts. In July implied volatility was running much higher than today’s VIX reading of 21.45. Indeed the start of July marked the last time the fear-gauge extended above a reading of 30. Back then the S&P index at 875 was pretty close to the money. Now this investor is forced to take a hit from lower vega and theta at a significant expense to maintain this bearish position. In other words, eroding volatility and the passage of time as the market goes into overdrive is crucifying this trade.

GME – GameStop Corp. – The video game retailer suffered a more than 7% decline in shares today to $26.12 and received a downgrade to ‘neutral’ from ‘buy’ at Janney Montgomery. We observed bullish options activity in the January contract despite the bearish move in GME’s shares. It appears one investor sold a strangle to finance the purchase of out-of-the-money call options. The strangle involves the sale of 2,500 puts at the January 25 strike for an average premium of 1.47 apiece, as well as the sale of 2,500 calls at the January 31 strike for 68 cents each. The investor reels in a gross premium of 2.15 on the strangle. Selling the calls and puts is more than enough to finance the purchase of 2,500 calls at the January 27 strike for 1.96 per contract. The trader receives a net credit of 19 cents on the transaction, which he retains in full as long as shares of GME remain ‘strangled’ within the range of $25.00 to $31.00 through expiration. Additional profits accumulate if shares rise above $27.00. If this occurs, the short call position at the January 31 strike limits profits to a maximum of 4.19 in the event that the stock breaks through $31.00.

QSFT – Quest Software, Inc. – Software designer, Quest Software, Inc., hopped onto our ‘hot by options volume’ market scanner due to bearish options action in the near-term November contract. Shares of QSFT fell more than 2.5% during the trading session to stand at $18.16. It appears one investor put on a pessimistic play by utilizing the risk reversal strategy. The reversal involved the sale of 2,500 calls at the November 20 strike for a nickel apiece and the simultaneous purchase of 2,500 puts at the November 17.5 strike for 45 cents each. The net cost of buying the put options is reduced to 40 cents per contract. Profits may accumulate for the bearish trader if shares of QSFT continue to decline by another 6% to breach the breakeven price of $17.10 by expiration next month.

AAPL – Apple, Inc. – Option implied volatility on the maker of the iPhone plummeted 30% to 25.78% following yesterday’s fourth-quarter earnings report. Apple posted profits and sales that exceeded even the more generous forecasts for the firm, sending shares up 5% to the $200.00-level. Option volume exploded to nearly 160,000 contracts by 10:00 am (EDT). Let’s keep an eye on the technology bellwether today to see how investors react to AAPL’s positive earnings report.

PFE – Pfizer, Inc. – The global pharmaceutical company continues to attract droves of option traders who exchanged about 60,000 contracts by 10:00 am (EDT). The firm posted third-quarter earnings of 51 cents per share that beat street estimates by about 3 pennies. Options on Pfizer surged during yesterday’s session, will we see similar heavy volume today?

CAT – Caterpillar, Inc. – Third-quarter results for CAT beat expectations by posting profits of 64 cents per share. Shares are up nearly 4% to $60.00 with option traders tossing around upwards of 60,000 contracts on the stock this morning. Perhaps the good news from CAT today points to signs of economic recovery for the global economy.


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